I. Introduction

The core M0 protocol (which excludes periphery contracts and is hereon referred to simply as the M0 protocol) is a coordination layer for permissioned actors to generate $M.

$M is a crypto asset whose value is designed to be a robust representation of an exogenous collateral basket – a relationship enforced by the financial structure and market incentives of its generators.

The purpose of $M is to become a superior building block for value representation, by combining the convenience of digital money with the risk profile of physical cash. While holders may find this construct appropriate as a vehicle for stablecoin use cases, builders, developers and financial services providers might be interested in it as raw material for the build out of novel products and services – including as collateral for stablecoins.

When cash was primarily a physical construct, it had several properties that its holders found desirable but have since been lost in the process of digitization. Physical cash is first and foremost self-custodial; it’s a bearer instrument which guarantees that it cannot be frozen or seized without due process in the holder’s jurisdiction. For example, holders in one nation do not need to be concerned that a far away government can turn off the cash in their pocket. This feature allows cash to be credibly neutral, which means that it cannot discriminate against any specific holder. Second, physical cash does not carry additional counterparty risk, it is as good as holding reserves at the issuer’s central bank. Finally, physical cash is generally fungible with itself, which is to say that except in extraordinary circumstances where holders are wary to accept a certain serial number, no bill is more or less valuable than another. The downsides of physical cash are that it cannot be transferred electronically, it must be stored in a physically safe location which becomes exponentially more difficult to secure as the quantity held rises, is becoming less broadly accepted as a means of payment, and lacks general digital properties that can allow seamless composability and programmability.

Most users have historically believed those properties to be inherited by bank deposits, as if they were merely a digital representation of cash — the fallacy of this false equivalence is becoming evident due to the stress increasingly experienced by the banking system, and is exacerbated by the global nature of stablecoins. What we call digital cash today is typically a commercial bank deposit that can be transferred electronically. It has several beneficial features such as the ability to earn interest, the ability to be transferred over the internet and across large distances, and it offers the peace of mind of digital and custodial security. It is also the most widely accepted form of payment through credit cards, debit cards, ACH, and SWIFT. Unfortunately bank deposits lose many of the desirable features of physical cash. Bank deposits are implicitly custodial and can be seized or frozen without due process in the holder’s jurisdiction – they are not credibly neutral. Due to the inherent characteristics of fractional reserve banking, bank deposits hold significant counterparty risk and are only as valuable as the specific bank’s balance sheet permits. For this reason they are also not fungible. A deposit in one bank cannot be treated as equal to a deposit in another, and thus introduces exorbitant clearing times between payments, as well as compounding complexity throughout the system.

$M is credibly neutral by design, it is by default self-custodial and fungible. Each $M is the same as every other $M and there is no ability for the protocol to discriminate against any specific holder(s). $M is stored and tracked on blockchains, and thus can be stored more securely at scale than physical cash. $M’s current instantiation is intended to be generated using short term US T-bills, representing the lowest level of counterparty risk excepting physical cash and bank reserves within the US dollar system. The T-bills used to generate $M must be held exclusively throughout a network of orphaned, bankruptcy-remote entities, which are customized to interact with the M0 protocol while meeting the formalities of the existing legal system. $M can be sent anywhere in the world instantaneously using the blockchain rails on which it exists. Interest flowing to the T-bill collateral can be partly collected by the protocol and democratized across permissioned issuers and distributors.

We refer to $M as raw material for value representation, and not necessarily a stablecoin in its own right, because the system relies on permissioned issuers (known as Minters in the protocol) for generation and distribution. These Minters should be compliant with all applicable regulations and may decide to distribute their own product, for example by wrapping the $M token in a stablecoin contract in a way that best meets their requirements. In this capacity, $M becomes a monetary building block on top of which novel products can be built.

In summary, the M0 protocol is the platform powering builders of safe, programmable, interoperable stablecoins. It introduces a superior coordination mechanism that democratizes access to the generation and management of programmable, digital cash instruments. It is an infrastructure layer not for the simplistic tokenization of real world bank deposits, but a much more sophisticated way to provide access to the liquidity on high-quality collateral. M0 intends to redesign the monetary vertical stack, rather than build an additional layer on top of what has ultimately become byzantine infrastructure.